[From Hospitals & Health Networks Daily, September 20, 2011]

There is fire in the valley and smoke in the mountains. A plague is on the land and danger is afoot.

That may be — maybe — the good news.

Health care is more unstable than it has been at any time in living memory. That’s pretty scary, but that instability may turn out to be its most important asset in this moment, as the whole industry becomes open to profound change.

As long as I can remember, thoughtful analysts have been saying, “We need to do this differently. This is not working.” In this century, the voices became louder and more insistent, and they spread. But health care has been very slow to evolve in any fundamental way. Even health care reform, when it came through extraordinary political pain and maneuver, was more a way to bolster business as usual, a way to shore up revenue streams and patch holes in the fee-for-service business model, than it was any fundamental restructuring.

Now the ground under our feet is liquefying.

The Bad: The Economy

Political rhetoric screaming “Jobs! Jobs! Jobs!” continues to be matched at every level by political action to slash government-dependent jobs, cut funding and limit actions that might actually produce more jobs any time soon. More and more “medically indigent” people are streaming through our doors, and the number and percentage of uninsured still are rising a year after passage of health care reform.

The health care sector of the economy is slowing down. Health care architects and planners are heading to the airport for another trip to Brazil or Dubai or Shanghai, places that are building while capital projects have slowed, suspended and stopped in the United States. The latest job reports show that health care, for the past three years the stable haven of job growth in the troubled economy, has stopped hiring. The looming Medicare cutbacks are troubling executive conference rooms and board meetings across the country.

The worst anxiety is the instability. There is no light yet at the end of this tunnel. No one knows when the economy will turn around, or how much worse it will get before it gets better.

The Ugly: The Politics of the Slowdown

State governments are slashing Medicaid and indigent care budgets, depriving health care institutions of lifelines that help them offset the costs of caring for the poor.

The anti-government and anti-tax mood in the land spills inevitably into health care, which gets so much of its funding through federal, state and local governments.

The ugliest of this is again the instability: It is hard to say when this might get better, whether it might get worse, or how fast, or how bad it might get. It is easy in this atmosphere to write doomsday scenarios.

The Good: A Time to Experiment

Wait, really? Is there something good in this mess? Actually, there is. It is the very instability that is the source of the fear.

Every problem holds the germ of its own solution. We cannot know exactly how health care will change in the coming few years, but we can know that it will change, because it is not possible for it to stay as it is. It is also far more malleable to our attempts to change it for the better than it has ever been.

If we are smart and fast and aggressive and have a clear vision, there is a better chance than ever that we can help it change not chaotically but in ways that will make it better and cheaper for everyone. That’s our job, and this is our chance.

Our Shaky Equilibrium

Systems get stuck. In economic game theory, the technical term for this particular way of getting stuck is a “Nash equilibrium,” named for the mathematician who formulated it, John Nash (portrayed in the 2001 film A Beautiful Mind). Systems consist of a number of different interacting players. In the health care system, for instance, there are hospitals and health systems; doctors and physician groups; and other providers, health plans, employers, government payers, politicians, pharmaceutical companies, various suppliers and manufacturers.

In any system, each player seeks what is best for him-, her- or itself, to survive and grow and do what he, she or it is there to do. But we can’t think about them in isolation, because each player thinks about, and acts on, what he or she thinks the other players’ strategies will be. Each player fights to a position that is the best he or she can do with the information acquired, against the strategies of the other players as they are understood.

Imagine the players in a 3-D landscape, each climbing a peak of fitness, the taller the better. The place that represents “the best they can do” is called their “local optimum,” fitness peaks from which every direction is down. There is no strategy that will take them farther up without first taking them back down into the trough, no way to do better without doing a lot worse for a long time.

But this is not their best possible position. They may well be able to imagine a much better situation for themselves, they may be able to see another peak that is higher, but they have no way to get to it without hurting themselves. So they are doing “good enough” to stay where they are, but they are stuck there. And the players’ local optimum, their stuckness, is locked into the local optima of the other players around them, because each player is watching the others and reacting to their strategies.

So doctors being paid fee-for-service may know that their patients need and deserve more of their time and attention, and the insurance companies less of their time and attention, but if they do this unilaterally, they will make less money and likely be driven out of business. Insurance companies may know that there are less expensive ways to fund health care, but they are paid a percentage of the health care market. If they truly drive their customers to better, cheaper health care, they cost themselves a chunk of their market.

Hospitals are in the same position as doctors: They have to take the “good enough” funding that they can get, and keep begging for more, because to do anything seriously different would so undermine their position that they might have to close their doors, and what good would that do?

This position holds as long as the status quo does, even as it may slowly become less tenable for every player. A Nash equilibrium changes only if something causes the ground under everyone’s feet to shift.

That is what is happening right now.

A Window of Opportunity

For a concatenation of reasons, reasons that neither start nor end with Obamacare, players across health care are feeling the earth move under their feet.

Talk, as I have been talking, to surgeons, hospital executives, health plan administrators, nurses, insurance brokers, employers wrestling with health care costs, health care architects, pharmaceutical companies, device manufacturers, vendors, the people who actually make up this vast rolling chaotic system — and every sector tells the same story: It’s not working for them anymore. They no longer anticipate that the future will resemble the past, or get any better without some big change. Their business models have come loose from their moorings, and the new and safer harbor has not yet been located.

The fact that much of the industry shares this perception is of profound importance. The risk of attempting to stay where they are has come to seem very great, in fact impossibly so: They must change or die. The resistance to change has disappeared — if only they can see what to change to, what course to set that will bring them safely to a new situation.

The health care system is approaching a state of liquefaction. New coalitions of players can form, break and re-form in new relationships, to find better footing for their members. Providers may ally directly with employers, for instance. Broad coalitions of providers may organize ACO-like virtual organizations to offer services to employers or government payers. Health plans may reorganize themselves to directly provide health care services to select covered populations. Disease management organizations may spring up to serve as organizers of services with different incentives.

The resistance to experiment, the defaulting to status quo, is evaporating.

This is temporary. Before too long the system will resolidify in new forms that represent a better solution in one way or another for some or most of its most powerful players. Once it does, it once again will be in a Nash equilibrium, difficult for any player or coalition of players to change.

The time span is short, the speed accelerating. Given the pace of change of a huge, politically embedded system like health care, this is probably a unique opportunity in our professional lives. Once the system re-concretes, it is not likely that we will have another such opportunity any time soon.

We in health care deal in contracts and budgets and programs and percentages, but these numbers and documents represent real life and death, real suffering and poverty. If you hope, in your life, to do good in the world, now’s the time.

Cutting costs does not cut costs. If we hope to steer health care toward a better cheaper future, we have to wrap our minds around this conundrum: Slashing spending does not necessarily improve the bottom line.

Governments in Ireland and the United Kingdom have come up hard against this conundrum. They have both faced soaring deficits due to the economic downturn, because their tax revenues have fallen at the same time that their costs for unemployment and other kinds of social support have risen.

So they both did what might seem like the sensible thing: They attacked the problem by cutting spending, in the professed belief that such a move would also increase the financial markets’ confidence in the future, and thus pump up the economy, reduce unemployment, reduce the interest the government has to pay on its debt, and increase tax revenues.

Result? Their deficits have grown even larger. Why? Because what economist Paul Krugman likes to call “the confidence fairy” never showed up. The austerity measures tanked their economies even further. Firing a lot of people, it turns out, drives unemployment up and tax revenues down. The worsening debt picture increased the cost of borrowing. Many U.S. states are headed down the same path right now, slashing spending in order to slash deficits, and the U.S. Congress is famously and forever wrangling over the same formula.

Aim at Foot. Pull Trigger.

What is to notice here, from our perspective, as people who run health care systems? Two things:

• This conundrum (spending cuts lead to increased spending) happens when an entity cuts spending that is an input to the larger system to which the entity is responsive.
• This is a pattern that repeats in one way or another at all scales in the economy: National governments, states and provinces, health systems, individual businesses

So a government cuts spending drastically, lays off workers, cuts salaries and restricts unemployment benefits. But a cut in spending by the government is a drop in income to the economy as a whole, the very economy on which the government depends for its tax revenues and its borrowing ability. A state finds its austerity spending program helps drive down its tax revenues, and drives up the number of people applying for Medicaid and other support programs. A business faced with a fall in sales lays off workers and cuts back investment in new equipment, inventory and its sales force, and finds that sales decline even further, while it has narrowed its own ability to respond with new products, more efficient and innovative production, or new revenue streams. A health system responds to cuts in reimbursement levels and shifting payer mix with the same tactics, laying off people and cutting back on new investment, and finds that it has actually decreased its efficiency, increased costly mistakes, and cut its ability to respond with new initiatives and revenue streams.

Health Systems: More Complex

But health systems’ cost situation has always been much more complex than other businesses, and has traditionally been drastically different, for one simple reason: Health care providers have been able to decant their excess costs to customers and payers.

Reimbursements are set based on various formulas, and negotiations based on the formulas. These, in turn are based on a number of factors, including such things as a vague idea of how different items generally are priced in a given market, what they cost last year, how much should be allowed for system overhead, and how able the payer is to beat up on the provider. These negotiated reimbursements have not been based on any actual accounting of the incremental cost of producing the service in a given setting. In fact, in the past, most systems have been incapable of producing any such realistic cost accounting. And there has been little real competition of the type that would demonstrate how efficiently a particular product or service could be delivered.

Hospitals and health systems always complain that the reimbursement is far too low; the payers that it is too high. Providers have dealt with the reimbursement squeeze by trying to cut costs in general, through strategic moves to change their payer mix (such as building facilities in growing suburbs and closing facilities in poor areas) and to perform more of well-reimbursed procedures and less of poorly reimbursed ones.

Overall, though, since health systems have continued to survive, we can conclude that the reimbursements have included the cost of their inefficiencies. If they did not, if payers were only paying for what a service would ideally cost in some ideally efficient system, we would all have closed our doors long ago.

No More Cost Decanting

That’s changing. Health care providers can no longer assume that they can decant their costs to the payers. Let’s take a look at how, exactly, that is changing.

There are three ways to cut costs in treating a given patient, and they are quite different in their effect on the provider’s bottom line. These three ways are efficiency, coordination and avoidance.

Efficiency relates to unit costs: How much does it cost to administer a given procedure or test (such as foot amputation for a diabetes patient)? In a fee-for-service system, being more efficient at each service is always a net gain for the provider. Whether the service is not really necessary or helpful to the patient, or even damages the patient, does not show up on the balance sheet. What shows up is whether you can produce the service for less than the average reimbursement for your payer mix.

The more fruitful economic strategy is the one that hospitals have followed for years: Determine which outcomes are already being delivered at a cost substantially below the reimbursement, and do more of those; do less of those that are delivered at a loss. That’s a lot easier than doing the hard work of becoming steadily more efficient at all your processes.

Coordination relates to bundled costs: How much does it cost to produce a particular solution to a problem (such as the entire foot amputation bundle, from intake and diagnosis, through imaging, anesthesia, operation and post-op care, through discharge and maintenance care)? Can we deliver this solution at the right level of acuity? Can we avoid duplicating services?

Avoidance relates to solution costs and system costs. Solution costs answer a different question: How much does it cost to solve the whole problem, including all possible solutions (such as aggressive early treatment of the foot abscesses, to avoid the need for amputation)? System costs answer an even wider question: How much would it cost to prevent the problem in the first place (through aggressive management of the diabetes, including regular foot exams)?

The Cost of Avoiding Costs

Take, for a moment, these few examples: 1) Complex back fusion surgery for simple chronic back pain, which works no better than simple decompression, yet costs up to 10 times as much and kills twice as many people. Or any surgery for simple chronic back pain, which has proven no better than medical management (ibuprofen, yoga, injected steroids) over any time span longer than a few months. Medicare shells out around $2 billion per year for such back surgeries. 2) Heartburn surgeries, shown by a large randomized clinical trial to work no better than over-the-counter drugs like Prilosec and Nexium. 3) Implanted defibrillators, which are literally life savers for most people who receive them. But a major study in the April 7, 2010 issue of the Journal of the American Medical Association found that 22 percent of Americans who get them don’t need them—they don’t fit the “evidence-based” profile of patients who would be helped and not hurt. Implanting the device is a major, invasive operation that involves sticking wires into your heart. It’s expensive, at an average cost of about $40,000, including the device, hospital charges, and the surgeons’ pay. It’s common, at about 100,000 operations per year. If 22 percent are not needed, they represent an unnecessary expense of about $880 million—nearly $1 billion per year for one common, unnecessary operation that, by the way, puts the patients at risk, as any operation does.

So in three quick examples we have identified wasted costs amounting to something like 4 percent of the $100 billion it is commonly thought it would take to pay for the health care of all uninsured Americans.

But traditionally, as a hospital, these are not your wasted costs. In a fee-for-service system, they are decanted to the payer. The only costs that really matter are your costs per reimbursable item: Can you get reimbursed for this? Can you get your costs of production significantly below your reimbursement? If an extra CT scan, or the whole operation, is not strictly necessary, you’re still fine as long as you can get reimbursed for it under the right code.

Cost savings through coordination and avoidance save money for the customers, for the payers and for the system at large, but if you are fee-for-service the money they are saving would have been your money. You could have charged for the inefficiencies, the unnecessary scan, the avoidable surgery. Forming an accountable care organization doesn’t change that. As long as it is fee-for-service, an ACO is just a way to get back a little of that money you didn’t make. You saved costs by driving down your own income.

As we enter a world with more bundled purchasing, value-based purchasing, mini-caps (such as disease management contracts) and full capitation, all of these deviations from a strict fee-for-service model bring the other ways of cutting costs to the fore.

How Do You Make Money by Saving Money?

To make money at coordinating care, or through avoiding solution costs and system costs, you have to be at risk for the cost of that size of solution. To make money at bundled payments, you have to be able to control the costs of all parts of the bundle. To make money through cutting solution and system costs, you have to be at risk for the entire solution. If you help a patient avoid a foot amputation by aggressively treating the foot abscesses, or by avoiding abscesses altogether, in a fee-for-service universe, your bottom line just took a huge hit. In a universe in which you are at risk for the health of that patient, because you have a capitated contract for their diabetes care or for their overall care, your bottom line looks better for every cost you can avoid.

Sometimes this means adding process costs to save the system costs. The Vermont Blueprint is a good example. This project places community health teams in primary care offices. Led by nurses, these teams are charged with tracking chronic patients and offering whatever help they need to manage their situation, as well as coordinating the physicians’ offices with community prevention efforts. The cost, which is borne by the payers, is roughly $350,000 per team per year. Each team can cover about 20,000 people. Do the arithmetic: $17 per patient per year. Result: better health, 22 percent lower cost in inpatient admissions, 36 percent lower cost in emergency visits, 11.6 percent lower costs overall. That’s big.

Or the Special Care Center in Atlantic City, N.J.: This clinic offers special attention, team-based care, and walk-in immediacy to the top 5 percent of health care spenders among the employees of the casinos and of the AtlantiCare Medical System, all for no co-pay, no deductibles, even the drugs free. Result: a 25 percent drop in overall costs for this top-spending 5 percent.

If you are a hospital in a fee-for-service system, those are hits to your bottom line. If you are at risk for those costs, saving them turns into profit.

It’s About to Get Really Complicated

This is about to get really complicated for most of us. If you are Kaiser, or the Veterans Administration, or Group Health of Puget Sound, fully capitated for most of your users, the calculations are complex, but they have a simple basis: How do you deliver the best possible health and health care at the lowest possible cost? Most of us are not in that situation. Most of us are in a fee-for-service universe, and are not going to become another fully capitated Kaiser any time soon. But over the next few years we will find ourselves taking up various types of risk-based contracts, coming to count on pay-for-performance bonuses as a major revenue stream, offering bundled products, and competing for “value based purchasing.” Each of these flips some part of the incentives with some part of our users and some part of our suppliers (including physicians, and other providers with whom we join in bundles or any kind of risk-based contracts).

In the face of this vastly more complex price picture, we realize that we are driving systems whose very complexity makes them relatively inflexible. A car company, for instance, can design a cheap-as-dirt car for the Indian market, say, and a range of products from basic pickups to a line of luxury sedans for the U.S. and world market. No problem. But a health system with some users under risk contracts and others fee-for-service finds those patients intermixed through all their facilities. And the fee-for-service patients from different payers come with different levels and kinds of incentives in their co-pays and deductibles, and different pay-for-performance and value-based purchasing incentives from their plans. It can become very difficult to tell whether any particular avoided cost helps you or hurts you.

Re-designing the system to avoid unnecessary costs is hard enough. Designing it to avoid some costs for some patients and not for others is impossible. Kaiser of Northern California has a medically sound, guideline-based program that helps steer patients with knee problems away from unnecessary and unhelpful MRIs, operations and total knee replacements. This saves Kaiser a lot of money and helps the patients improve their knees. If you put such a program in place, would it save you money or just cost you reimbursements? This can become extremely difficult to tell.

We haven’t been trained for this. Our training and experience is in a different universe. We are just feeling our way forward here.

So What Is a Hospital Executive Team to Do?

Three core strategies:

First, get fierce about efficiency, the first type of cost. Driving down the process cost of everything you do is a good thing no matter how you make your money. And the improvements in quality that come out of such efficiency efforts will help you with pay-for-performance, with ACO kickbacks if you are aiming for them, with all types of value-based purchasing.

Second, clarify your situation strategically, driving toward simplifying your patient flow and major contracts, so that you can easily grasp your cost situation with the various populations you serve.

Finally, judiciously take on risk for costs you can help control. Then vigorously control those costs, using all the tools available to avoid unnecessary operations and procedures, duplicated tests, and treatments at the wrong level of acuity. In becoming at risk for some populations and some parts of your services, you will have to learn to act as if you are at risk for all of it. You will have to drive your whole system toward greater efficiency and effectiveness, at the same time that you are finding various ways to profit from that efficiency and not be driven bankrupt by it.

None of this will be easy, or exactly fun, but it sure will be educational.

(This article first appeared in the American Hospital Association’s H&HN Daily, July 21, 2011)

A reader writes to ask: What about personal responsibility? “I see no movement afoot to require the public to accept or meet norms of behavior that would reduce the need for medical treatment—smoking, excess drinking, use of drugs, over weight, etc. What ever happened to ‘You reap what you sow’?”

Good question. I answered:

Thanks for writing. This is a common concern. It’s often expressed something like, “Why are we paying for all this healthcare for people who won’t take care of themselves?” This seems, at first blush, an obvious question with an obvious answer. After all, as I constantly point out in what you read, vast amounts of healthcare dollars are spent to correct what we might call “self-inflicted lifestyle damage.” Why should the rest of us pay for that? Where is the responsibility?

On inspection, the question is more complex and the answer is not so obvious. Let me try to parse it out. I can think of four related aspects of the question.

1. Their health affects ours. My wife and I had a lovely dinner at a very nice French restaurant on the waterfront here in Sausalito last night. The staff was all French, with those endearing accents. The busboy who set our table, poured the water, took away dirty plates and all that, was Mexican. I talked with him a bit in Spanish about the nice weather. I have no way of knowing his immigration status. Now, if I had my ‘druthers, just as a customer, would I rather that he have good access to healthcare and healthcare advice, be up on his flu vaccinations, be aware of the importance of washing his hands frequently, or would I rather he be a seething mass of communicable disease, compounded by ignorance?

Similarly, why should I wish the best outcomes for the Yakima Valley Farmworkers Collective? Because I drink beer. Ninety percent of the hops in the U.S. come from the Yakima Valley area. Sick and injured farmworkers do not help make hops cheaply and reliably available. In many ways, private health is a public concern. Wanting everyone to be as healthy as possible is not just a nice, charitable feeling. It is a public health concern, as well as an economic concern.

2: Assumptions about will and information. “You reap what you sow” is a very American thought. We like to think that people are completely responsible for their actions, have the ability to change them, and the knowledge that they need to identify what they are doing that is wrong or stupid, and to identify how to correct those actions. And of course in some sense we are, but that sense may not be as universal as we would like to think it is. My wife, Dr. Jennifer Flower, Ph.D., is a psychoanalyst, and we were discussing this just the other night, in the context of an article in the NY Times about Congressman Anthony Weiner. The article asked the question everyone has been asking, “What was he thinking?” They talked to various experts on neurophysiology, compulsive behavior, addictions, and the like, about the changes in the brain and mental patterns that lead to bizarre and obviously stupid behavior like that. That “Jackass” actor presumably knew that getting blind drunk and driving his car at 140 miles an hour was stupid and dangerous and would get him killed. Yet he did it anyway. Repeatedly, to a predictable end. People like that make being on the highway far more dangerous than we would like it to be.

We can now assume that people who smoke have heard that it is bad for them, but many of them don’t really know how they could stop. You and I might think that they should know, but they don’t. Most people who are obese don’t like being obese, don’t know how they got that way, and don’t really see a realistic path to losing all that weight. Again, we might think that we could tell them what to do, but they don’t actually know what to do (and most of the time, we would be wrong about what would actually work).

Assuming that people with behavioral problems could just correct them is not a realistic or fruitful way to frame the thought.

3: Ability to correct behaviors of others. So what do we do to correct those people’s behaviors? History shows us in multiple ways that simply telling them to shape up doesn’t work. Prohibition doesn’t work. Shame doesn’t work. Even good information by itself doesn’t work. The only thing that works is good information, combined with good attention, conveyed in language and modalities that they can hear it, delivered repeatedly by people whom they trust. What it takes is total engagement.

Short of that, changing those folks’ behavior is a pipe dream. The way you and I think they “should” live is completely irrelevant. Our opinions change nothing. “Requiring the public to accept or meet [our] norms of behavior” is a non-starter.

4: Just let them die? What would be the logical result of taking “you reap what you sow” as the driving dictum of the healthcare system? If you have a problem caused by your behavior, you’re on your own. Just suffer and die. This is, in effect, making stupid behavior a criminal offense. Some obviously is, such as drunk driving. But I’m picturing trials before you get treated at all to determine whether your lung cancer came from your smoking or the effluent of the refinery that you lived near; whether your obesity was willful or not.

If we are not going to just tut-tut disapprovingly and cast people who we think caused their own problems out into the cold, then we end up treating them. What’s the cheapest way to treat them? As early as possible. In fact, the absolute cheapest way to treat them is to prevent the behavior from causing a medical problem in the first place, by getting very engaged with them as early as possible, at the primary care level, and in the schools, in the workplace, and in the community. That’s how they essentially ended risky sexual behaviors among gays in San Francisco and across the nation in the late 80s and 90s. There are scores of other examples in the “Healthy Communities” movement.

So the answer to: “Why do we have to pay so much to take care of people who won’t take care of themselves?” turns out to be: Because we have been in denial about the problem. If we truly want to spend as little as possible taking care of bad-behaving people, we need to build better systems for engaging with them earlier, stronger, in their language.

A “nanny state?” What would the Founders do?

By the way, does this sound like a “nanny state”? No, because engaging with the system is still voluntary at every step. It’s a numbers game. There will always be those who can’t or won’t take up the challenge to change their behavior. But it can be clearly shown that you can change the landscape of bad behavior within a population by offering the right kind of help at the right kind of level.

You ask, “Did our founders ever envision a nation that would use the government in the way it has been re: provision of healthcare?” We actually know what the Founders thought. Healthcare of course was a much more primitive matter then, and far less expensive compared to people’s income. But it was a much greater problem for one part of the population that was poor but economically important. So the very first Congress established a single-payer, individual mandate system for them: sailors got a few dollars taken out of their pay every payday; when injured or sick they could go to the sailor’s hospital in any of the young country’s major ports. They took care of the problem.

What would Jesus do?

We also, by the way, have some sense of how Jesus would deal with people who behave badly. When he encountered the accused prostitute, he told her to change her ways: “Go and sin no more.” But first he invited those in the crowd who had never behaved badly to cast the first stone. Then he knelt and began writing in the dust the sins of the crowd, and they melted away. When we are quick to condemn those who behave badly, and try to withdraw our help from them on that basis, this is a lesson worth contemplating. Few of us are as free of bad behaviors throughout our lives as we would like to imagine. Most of us struggle to live a good life. Some of us have had a lot more of a leg up in doing that than others.

So economics, good systems analysis, and a sense of forgiveness at the core all drive us to the same conclusion: The way to drive down costs for people’s unhealthy behavior is not to withdraw services from them, but to get to them earlier with smarter, stronger engagement.

Under the headline, “Medicare Plan for Payments Irks Hospitals,” today’s New York Times details the opposition stirred up by the government’s “value-based purchasing” initiative.  If you’re buying anything (and the US federal government is the largest purchaser of healthcare in the world), on what basis other than value would you want to buy?

The measure at issue is “Medicare spending per beneficiary” during hospitalization, and in the 3 days before and 90 days after. The hospitals and hospital associations that are complaining have, mostly, two beefs: “Our patients are sicker,” and “We can’t be responsible for what happens, and what tests and procedures doctors order, outside our walls.”

The government’s response to the first is that the system will be adjusted for older populations, more acuity, and other variables. The response to the second is more complex, but it amounts to: “Work it out.”

And there is good reason for this. In studies going back two decades, the Dartmouth Group has shown wide disparities in Medicare payments per beneficiary between regions and between hospitals. A recent Institute of Medicine study took the Dartmouth stats and, in response to all the talk from hospitals that “our patients are sicker,” or “but we have to pay for teaching and research,” re-worked them to back out all those confounding factors. The Dartmouth Group’s study showed that the most expensive areas spent three times as much as the least expensive. After the IOM backed out the confounding factors, the data still showed that the more expensive areas spent twice as much.  And the expense does not vary so much with inner-city status or number of illegal aliens as it does with whether health care in a given area is well-organized and coordinated or unorganized and fractured. It’s a really easy pattern to see if you stare at the maps of expense long enough, and know a lot about different healthcare markets.

Lack of care coordination is at the core of the mess healthcare is in, coordination between various parts of the healthcare system locally, on the ground, and coordination between the healthcare providers and the patients’ life. As Atul Gawande put it in his commencement address at Harvard Medical School last week, “It’s like no one’s in charge — because no one is.”

A reasonable response to a hospital or health system that claims, “Our patients are sicker,” is actually, “How did they get that way? What have you attempted to do about it?” That’s reasonable to ask because some organizations of various types, from hospitals to medical groups to employers to unions to state Medicaid administrators, have actually found ways to reduce the burden of sickness, even in very poor populations, for the people who show up in their system, even before they show up — and have saved money, even in cases where they are not getting reimbursed for it.

If an executive for a health system complains, “We don’t have any control over what those doctors do!” it is reasonable to ask, “Why not? What have you tried? What have you not done?” It is reasonable to ask because there are organizations that have been increasingly successful in working tightly with doctors, even doctors who do not work for them. There are many different ways of coordinating care, in hundreds of examples in scores of different contexts around the country, in cities and suburbs, in tribes and in Medicaid populations, for well-employed groups and retired folks on Medicare. No one model for coordinating care works for every market, every physician population, and every patient population, but the models are out there. It’s difficult, sometimes very difficult. It can be expensive, and it’s always time consuming. But other people are doing it, why not you?

Why not you? Let’s be clear: These extra costs do not represent some technical glitch in the reporting system. This is not an accounting argument. These extra costs mean real people with extra sickness, extra suffering, and extra unnecessary deaths. You don’t have to call in your house ethicist on this question. It’s a moral question, but it’s not a hard one. If you are in charge of some piece of the healthcare system, and you are not doing everything you possibly can to coordinate care in order to reduce costs, to reduce suffering and unnecessary death, what’s the moral accounting, for you, personally?

[Note to the reader: Anything that is in italics and square brackets (such as this note) is addressed to you, personally. Yes, you. Try it on, see if it fits.]

Healthcare has, right now, the greatest opportunity we have seen in our lifetimes to make a big change, to rebuild itself in a hundred ways to become better for everyone, and cheaper—to get cheaper by getting better. We’re not talking “bending the cost curve,” cutting a few points off the inflation chart. We’re not talking a little cheaper, a little less per capita, a few percentage points off the cut of GDP that healthcare sucks up. We’re talking way cheaper. Half the cost. You know, like in normal countries.

We’re not talking a little better, skipping a few unnecessary tests, cutting the percentage of surgical infections a few points. No. Don’t even think about it. We’re talking way better. Save the children, help the people who should know better, nobody dies before their time, no unnecessary suffering. Seriously.

I don’t know how high you want to aim, but personally, I think we should aim at least as high as the cutting-edge programs and facilities that are already out there, in the system as it exists today, cutting real healthcare expenses of real people, even “frequent fliers,” by 10, 20, even 30 percent, while making them healthier, much healthier. At least. To me, that’s a wimpy goal, just doing as well as some other people are already doing. Because these programs are just getting off the ground. They’re in the first few iterations. The stretch goal, the goal we can take seriously, is to cut real costs by 50 percent, by making people healthier. There is at least that much potential out there.

All the Ways the System Doesn’t Work

You want a little convincing? Here’s an easy little exercise: You know how the system actually works. [Note: Yes, you do. You’ve been around the block, right?] Pull up an empty notes page on the laptop, iPad, Blackberry, iPhone, whatever, and just start writing a list of all the frustrations you can think of, the thousand and one ways that the system does not drive toward the best health at the least cost for the people it serves—the missed handoffs, the wrong person/wrong drug mistakes, the lack of engagement with the patient’s life, all that. [Note: My guess? You can come up with a better and longer list than I can. Every person I talk to who actually works in health care has buckets of this stuff for me, every time I talk to them.]

Now do a little imagination exercise: Go down that list, stop at each item, and imagine some way in which the system eliminated it. Imagine that there was some systemic change that made it nearly impossible to give the wrong person the wrong drug, some change that meant that everybody got good health coaching, nobody ever got an operation that actually won’t help them, whatever is the inverse of each frustration on the list. Imagine what each of those changes would mean to the effectiveness and cost of healthcare.

Now imagine that somebody, somewhere, has done just that. Somebody is solving that problem, in ways that can be duplicated where you are. Because that is what I am seeing happen all across healthcare, and it’s a breathtaking story.

A Word about Systems

Do you know how many people died in car crashes in the United States in 2010? 32,000. That’s the lowest number since 1949. That’s impressive, but wait: It’s far more impressive than it sounds at first, because people in the United States drove about 10 times as many vehicle miles in 2010 as they did in 1949. In other words, if you drove a car or truck in 2010, you were 10 times more likely to live through each mile you drove than your father or grandfather was 60 years ago.

Why? Are we better drivers? Nah. Seatbelts, airbags, tougher DUI laws, breathalyzers, graduated licensing for teenagers, anti-lock braking systems, better highway designs, crash barriers, rumble strips, median barriers, steel-belted radial tires that don’t blow out, crumple zones, better bumpers…system tweaks that work, that make it 10 times as hard for even a terrible driver to kill himself or you.

It’s the system, not the individuals. We have only started on the thinnest little wedge of that kind of thinking about healthcare. That kind of thinking will take us way beyond “evidence-based medicine” to what is coming to be called “evidence-based health.” Evidence-based medicine does everything necessary to stabilize diabetic shock patients, gets their blood sugar under control, gives them the right prescriptions and sends them home. Evidence-based health goes home with them, if necessary, does whatever it takes to find out why they were in shock in the first place, what it takes to make sure that they fill the prescriptions, eat better, get good advice and don’t end up back in the ER in a month.

The Reform Is Not the Change

The federal healthcare reform law is a catalyst, and enabler, and an accelerator of the change we are going through. It is not the change itself, and is not even the cause of it, because the change is driven by much larger economic and demographic factors, especially by the crushing cost of healthcare. If the reform law were to go away, the change would not go away.

Here’s why the change is actually happening: As all these factors have come together, everybody in the business has come to believe that their usual way of doing business is crumbling under them. Doctors, hospitals, home health agencies, insurers, employers—everyone is desperate to find a new footing. And no one has found a certain footing yet.

Eight Methods for Screwing This Up

So this is, as the sportscasters say, our game to lose. It’s our change to screw up. And we can screw it up, big time. In case you are interested in helping that happen, here are eight ways to go about it:

Pretending it’s not there. Denial. A few tweaks. Business as usual. Same-old. Flavor of the week. Hey, it’s not my problem. I can squeak through to retirement anyway. [Note: Hello.]

Pretending it’s there and we know exactly what it is. We know its address and its measurements, the forms to fill out and the boxes to tick off. It’s all execution. Trust me, I’ve done this before. [Note: Actually, you haven’t. Nobody has.]

Fending off risk. Going for the safe choice. Pulling up the drawbridge. Hunkering down. We can’t afford to extend ourselves in this budget cycle. If we try that, it’ll just piss off the doctors. Better wait until this whole thing settles out. [Note: Let us know how that works out for you. From here, it looks like the waters are rising really fast.]

Grabbing an answer. Downloading a package. Not recognizing the edge of panic in your voice when you say reassuringly, “This is what works. This is the solution.” [Note: When the problem is not simple or static, the solution is not unitary.]

Mistaking it for an opportunity for empire. Building ACOs as regional monopolies to push up our compensation and grab market share. [Note: Consider this. How would your answer change if the question was not “How do we grow the enterprise and make our careers safer?” but instead was truly (truly now—be brutally honest, at least with yourself) “How do we help the people we serve better? How do we ease the suffering? How can we do that for more people? Cheaper? Earlier?”]

Making it a turf war. Grabbing territory. Knocking out the other guy.

Pretending it’s not a turf war, and losing it. Standing by while the other guy eviscerates your hold on the market. [Note: Of course people are going to treat it like a turf war. When everyone’s livelihood is threatened and their value is challenged, that’s what they do. That doesn’t mean you have to. In some games, the only way to win is to not play.]

Gaming the system. Figuring the angles. Making “What’s in it for me? What’s in it for us?” the only questions worth asking. [Note: Here’s the invitation: Play a bigger game. The author Harriet Rubin said a marvelous thing. She said, “Freedom is a bigger game than power. Power is about what you can control. Freedom is about what you can unleash.”]

Consider This

“Since death alone is certain, and the time of death is uncertain, what shall I do?” Yes, I’m quoting somebody. Never mind who. No, don’t write it down. Don’t Facebook it, Tweet it, stick it in Evernote, e-mail it to someone. In fact, don’t even think about it. Don’t think it through, generate options, prioritize. Stop. Just sit with it, just for this one moment: “Since death alone is certain, and the time of death is uncertain, what shall I do?”

Whoever you are, however you have defined yourself so far, you have your hands on some portion of this great rambling chaotic sacred Grand Guignol parade we call healthcare. You have some influence. You can nudge it, poke and prod it, re-shape it, help it grow, make new connections, try new skills. Healthcare is where we bring our suffering, and our tricks to defeat suffering.

We can do this. It is as if the sky has opened up, a break in the pattern; there is an urgency, a swiftness to events, a tide, a moment, a momentum. Let’s roll.

First published in the May 19, 2011 Hospitals and Health Networks Daily, from the American Hospital Association.

It’s a backbone-brilliant concept that actually produces better healthcare, and better health, for significantly less money—and a concept that America may be too politically hypnotized to ever put into wide practice. “Evidence-based” means it’s about what really works, “health” because that’s the goal.

Dr. Pauline Chen, in her blog on the NY Times website, profiles the emerging concept of “evidence-based health.”

“Medicine” is not the goal, it’s a tool. “Evidence-based medicine” doesn’t get you there. “Evidence-based health” hooks up advanced “medical home”-style primary practices with community health, behavior health, and other staff right in their office, to help patients do what they need to do to get healthier. Most interventions in chronic disease fail for reasons that have nothing to do with medicine. To make them work, you have to get out there in the community and deal with what gets in the way of health. This concept re-brands and sharpens the ideas of “community determinants of health” and the “healthy city/healthy community” initiatives that derive from Dr. Len Duhl, ideas that I’ve been talking about for 20 years, and connects them directly to the medical world.

According to a new poll, half of all Americans say they are “confused” about healthcare reform. And boy howdy, are they right!

Take a look at this new Kaiser Family Fund poll: http://www.kff.org/kaiserpolls/upload/8156-C.pdf

Scan down to Slide 9: Almost a quarter of all Americans think that ObamaCare has been already been repealed. More than a quarter aren’t sure. Barely half are paying attention enough to realize that it’s still law.

What about the idea that the reform law is wildly unpopular, and most people want it repealed? Slide 4 shows that 39% want it repealed, and 50% want it kept or expanded. But take a look at slides 7 and 8. The only major provision of the law that a majority of Americans want repealed is the individual mandate—the part that says you have to buy healthcare insurance or be fined. Even those who want the law repealed agree, except that a majority also think it’s unfair to make the wealthy pay a heftier Medicare tax.

Think about that: Even those who will tell pollsters that they want the law repealed say that, well, yes, they think it’s a good idea to give tax credits to small business to help them give health insurance to their employees. And to close the Medicare “doughnut hole.” And to subsidize low and moderate income Americans to buy health insurance. Or to provide voluntary long-term care insurance (the CLASS Act). And to tell insurance companies that they have to take all comers (“guaranteed issue”).

So 39% want health care reform repealed, but 30% want it expanded. And a majority across the spectrum want insurance companies to be forced to sign up all comers, but they don’t want to be forced to sign up if they don’t feel like it.

What are we to make of this?

1. What most Americans think about healthcare reform is somehow not exactly what you would hear on Fox News or on the red side of the House of Representatives.
2. Most Americans aren’t exactly paying attention anyway.
3. If Americans have a strong suit, it’s not arithmetic.

I had a great discussion not long ago with a naive believer in “free markets”—naïve in his fairly unexplored belief that the market provides a better solution to pretty much any problem than government does. Over lunch, after a talk I gave, this fellow objected to my description of the need for the government to set the right parameters for the healthcare market through regulation. Wouldn’t the free market do that better, he asked?

I thought a moment and asked him, “We’re sitting in a hotel ballroom. There is electricity all around us, in the wall plugs, in the lights overhead. How safe do you think we are from an electrical fire? How likely do you think it is that this hotel, over its lifetime, will burst into flame from electrical fire?” Not very likely, he said. “Can you recall hearing of such a thing happening, in recent years?” Um, no. “Electrical fires used to happen a lot, say, 80 years ago. I used to do this work, when I was in construction. I was barely out of high school, and didn’t know much about it when I started, but I am sure my work turned out quite safe. Let me suggest that the reasons hotels don’t burn down from electrical fires is government regulation that makes installing electricity that rarely fails, and fails safely when it does, a no-brainer. It’s all according to safety codes, the wires are color-coded, and checking your results is easy and fast. You don’t need skills, particularly, to do it in a fail-safe manner. You just follow the rules.”

Why, he asked, don’t we just wait until there is a fire, then sue the people who installed faulty wiring? “Well, what if there was a fire right now. Imagine that the insurance inspectors were somehow able to pinpoint the cause to an electrical fault—which would take some doing. But suppose they could. So the insurance company sues the general contractor who built the place 30 years ago, if it’s still in business. The general contractor turns around and sues the electrical subcontractor. The electrical contractor counter-sues, saying that it’s your fault because one of your guys must have moved the electrical box after my guys installed it when you re-framed for that doorway…and on and on. To get a tort result you have to be able to pin down the fault to a particular action, and pin that action on a particular person, in a court of law, arguing against lawyers who are trying to prove the opposite. Most mistakes or bad designs or cheap materials are never caught, many failures happen years later or in ways that don’t trace back to the original problem, and most failures can never rise to the level of proof required in a courtroom. So lawsuits are a woefully ineffective way to make people do better work. If you do shoddy work, most of the time you can get way with it–and there will always be huge incentives to do it as cheaply as possible. As an electrical contractor, you can only afford to do it right if everyone does it right. The same incentives apply to a device manufacturer, a pharmaceutical company, a health insurer, or anyone else in healthcare. You can’t afford to do it right if your competition can get away with doing it wrong.”

In the end, the right kind of regulation is good for business, as well as for the public.

The right payment structure keeps patients healthy while saving money.

(Originally published in Hospitals and Health Networks Weekly, 11/30/2010)

We want healthcare to be abundant, effective, easy, and cheap; for too many of us too much of the time it is scarce, ineffective, and maddeningly difficult. For all of us it is far too expensive. Why? How did we get in this mess? How do we end up paying so much for healthcare and not getting what we want?

It’s a big question, and it’s at the core of the mess we are in. The convoluted way we pay for healthcare in the United States gives too many patients treatments that they don’t need, or treats them for conditions that could have been prevented with much cheaper care, or denies patients services that they actually need. How does this happen?

To answer this question, we have to dig into the actual structures of healthcare, and some of the basics of economics. And in that answer we can begin to see how we need to rebuild those very structures in order to survive and thrive beyond reform.

Why Doesn’t Competition Seem to Work in Healthcare?

There certainly seems to be plenty of competition. For example, there are:

• thousands of hospitals of all different types (for-profit and nonprofit, free-standing and chain, general and specialty, teaching, children’s, public and private, military and veterans);
• hundreds of thousands of doctors in scores of specialties organized every way you could imagine (solo practice, small practice, large multispecialty practice, working for hospitals and health systems, running their own centers, in cooperatives like Group Health of Puget Sound and staff-model HMOs like Kaiser);
• hundreds of health insurers;
• scores of pharmaceutical companies, device manufacturers and other healthcare vendors supplying bed pans, gurneys and ambulances; and
• thousands of pharmacy benefit managers, vendor certification companies, disease management agencies, consultants and other companies providing bits of outsourced management expertise.

Though there is plenty of regulation, on most levels of the system there is no central Soviet-style commission allocating resources and deciding who gets which customers. All these organizations are free to compete for the customers’ dollars.

Why, with all that competition, can’t most of us seem to get the healthcare we need when we need it, where we need it, at a reasonable price? For most Americans, though we can see that modern medicine offers a nearly miraculous plethora of cures and therapies, our access to it through the healthcare industry is often arbitrary, often so arbitrary as to be cruel. For those under 65, the price is often so high that even insured people can be one serious disease or traffic accident away from permanent poverty. And even when it works, it can be mind-blowingly inconvenient.

How can that be? How can a “free market” system so blatantly fail to serve its customers? Until we find the answer to that question, we will never be able to find our way out of this mess.

Let’s do a little basic analysis, a little “Healthcare Economics 101.”

What Does the Customer Want?

What do I really want, as a customer of healthcare? Realistically, four things:

• When I’m sick, fix me.
• If you can’t fix it, help me manage it.
• When I am well, help me stay well.
• Be there when I really need you.

So why is it so hard for me to get those four things? Because—here’s the big key—I’m not really the customer. In fact, in most of healthcare, it can be hard to tell who really is the customer.

Who Is the Customer?

What’s a customer? Customers decide that they want something, choose it and pay for it. You decide that a new TV would be nice. You look online, maybe, or go to a big-box store, maybe check out some local independent store. You find what seems a reasonable value for your money, and you plunk down the credit card. You’re a customer.

The customer is the key regulating part of any free-market system. The customer is the reason you never see a plate of scrambled eggs or a new car advertised for $1,000. It’s the customer that enforces all sense of value.

So what’s different between classic economics and healthcare economics? Classic economics pictures a buyer and a seller. There is a constant, dynamic feedback loop between the many buyers and the many sellers in a market that establishes not only what things cost, but even what’s offered for sale, and on what kind of terms.

The core driver of all healthcare economics is the utilization decision, that is, people deciding to make use of some healthcare service. They get a new hip, take a new drug, get an exam, go in for a mammogram. The great majority of healthcare is insurance-supported, whether through government insurance such as Medicare, or through employers’ private insurance. And the great majority of healthcare is provided fee-for-service, that is, the healthcare provider (the doctor or hospital) bills the insurance payer for each separate test, procedure or prescription.

So what happens to that feedback loop in healthcare? First of all, the buyer is split in two, into a chooser and a payer. The organization that pays the bill does not make the decision to use that particular service. So the feedback loop between buyer and seller is obscured. And the chooser and the payer have quite different agendas. If the payer is just there to pay, it can have only one goal: to pay as little as it can get away with. It might set rules and payment schedules, but can never quite get it right, since it is really not there in the transaction, making the choice.

It gets even less clear: Who is the chooser? Who is deciding to use the service? Again there’s a split. The chooser is not the patient alone, but the patient (or the patient’s family) in consultation with the provider (usually the doctor). So again, and in a different way, the buyer is split. And the patient and the provider have very different stances. The patients have enormous “skin in the game”—great incentive to use whatever services might seem to help, since it’s the patients’ body, their pain, indeed often their life or death, that is on the line. The provider, on the other hand, has almost all the resources: the knowledge, expertise, equipment and access to drugs and therapies. And in any given transaction, the provider has far less skin in the game: this patient is one of hundreds or thousands. So the feedback loop gets even more obscured and tortuous.

It grows yet more murky: Who is the “seller?” Who is providing the service that is being sold? In most instances, it is the provider. The doctor who is advising the patient on buying the service is often either providing the service or working for the organization that will provide the service—or even owns it. You need a new knee. But you’re in luck, you’ve come to the right place, because I am an expert knee-installer. And the seller, of course, has a completely different agenda from the buyer. The seller’s agenda is simply to sell as much as possible. So the feedback loop between buyer and seller becomes so tortuous and knotted as to be useless, and the system skews, as a normal part of doing business, toward selling the services that make the most money.

Because it is inescapable: You will serve somebody. If it is not the patient, it will be somebody else.

Out of this we get markets in which, for instance, it can be very hard for a Medicaid recipient with diabetes to get (or even hear about) the nutritional counseling that might help her save her feet, but quite easy to get a surgeon to amputate her feet when her diabetes destroys them.

What Are Healthcare Providers Paid To Do?

This may sound overly cynical. Many doctors would protest that they never offer a service just because it would make them more money. But, as one neurologist put it to me: “The more I care about my work, the less money I make. The way for me to make more money is to serve my patients less: Give them less time and attention, and cut them loose as soon as possible.” That’s a terrible bind to put our best medical minds in. Many doctors doubtless choose the path this doctor does: Do better work and make less money. But many doctors feel forced to make the other choice: Do poorer work and make more money.

It is important to remember the two core rules of economics:

• People do what they are paid to do.
• People do exactly what they are paid to do.

People notice in exquisite detail what makes them money and brings them success. They will not as a normal practice do things that cost them money, or put them at risk of getting in trouble. In healthcare, what brings a provider money and success is doing more of the procedures and tests that are well-compensated by payers, and doing less or none of the ones that are not well-compensated—and certainly never failing to do some test or procedure that might keep them out of a malpractice suit, whether the patient really needs it or not. And those well-compensated and malpractice-safe procedures and tests are only indirectly related to the four things we really want when we think we are the customer. Almost no one in healthcare is directly paid to give us what we actually want.

What’s the Structure?

It’s important to notice that this confusion is structural: The ordinary structures of healthcare, with doctors, clinics and hospitals in strict fee-for-service relationships with payers, have great difficulty acting as if the patient is customer.

If we are to get out of this mess, we need to tweak those old structures and build new ones. That’s why we are seeing fascinating, weird experimental structures arising across healthcare—“extended medical home” PHOs, “virtual accountable care organizations” like those I cited in my last column. And that is why almost all of these are new forms of partnerships, ad-hoc contractual relationships that cut across the traditional structural lines to deal with the health of particular populations. The contracts set up incentive relationships that guarantee that someone makes a profit specifically by tending to the real needs of the patient, not just by providing services to the patient. And they are all over the place, taking different shapes to fill niches in the vast ecology of healthcare.

Let me just give you one example. If you were to look around, as an entrepreneur, for a way to make money by helping some population be healthier, what populations would seem like the “low-hanging fruit”? Would you think, “Ah, yes! Frail, elderly people on Medicaid in state-supported convalescent homes! And kids on Medicaid with disabilities!” Probably not. And yet that is exactly what happened in Illinois. McKesson’s disease management subsidiary contracted with the state to provide its “Your Healthcare Plus” services to just such populations. Teams of doctors, nurses and case managers, many of them on-site across the state, working with the patients’ existing providers, measurably improved the health of these patients. Counting the costs and fees for running the program, McKesson saved the state of Illinois $307 million in the first three years of the program—by giving people more services of the right kind of care and attention, not less.

Hospitals can form these OWAs (“other weird arrangements”) in all kinds of shapes, from at-risk contracts with insurers or CMS, to shared-risk medical-home arrangements with PHOs, to disease-management contracts with government agencies. And increasingly they are, across the country, because in the new environment the overburden of high cost and low capacity is killing us. We simply must find more efficient and more effective ways of serving our customers.

Structure matters. With the right structure, you make money by saving money. You help the customers meet their objectives, and you get paid for it.

Here’s a simple key to parsing the future economics of healthcare. We have been trying for over 30 years to control healthcare costs. And there is little evidence that any of these efforts have had much effect. For decades the rise in healthcare costs has been consistently several times higher than the general inflation level.

There have been dozens of schemes used in various parts of the industry — inpatient, ambulatory, devices, pharmaceuticals — and by different payers. But all of them, at each level in the industry, have had the same DNA: they have been based on controlling the unit costs, the price a doctor can charge for an office visit, a pharmaceutical company for a drug, a hospital for a night in a room. The few that have attempted to control system costs, such as “certificate of need” processes to control hospital expansion, have been indirect and ineffectual, and often have served only to control one part of the system (such as hospitals) while other parts expanded unchecked (such as independent surgery centers and labs).

Imagine that a business is constrained by the market, or some regulation, in how much it can charge for a product, such as televisions. What does it do to try to continue making a profit? Two ways. The first is volume. It does its best to sell more units. The second is upsell. Instead of selling simple TVs, now it wants to sell home entertainment systems with 50-inch screens and massive speaker systems.

Does this sound a bit like what the healthcare system has done over these decades? The system does vastly more for us than it did a few decades ago. There is vastly more that it can do. There is no doubt that much of this “more” is also “better,” wonderful and useful, helping us to live longer with less suffering. But much of this “more” is not better, it’s just more — surgeries of marginal usefulness, drugs to solve lifestyle problems, ER crises that could have been avoided by smarter, earlier intervention.

Now that the real cost and capacity crisis is beginning to hit us, and much of the health plans’ traditional cost-avoidance business model has been kicked out from under them, we are beginning to see “green shoots” of a new style of thinking arising across the industry, mostly from large employers and a few health plans, focused not on unit cost but system cost, asking not how they can “bend the cost curve,” lowering medical inflation by a few percentage points, but how they can actually send it negative, actually lower the real system costs of healthcare, not by denying people care, but by making them healthier. Because most of the cost of healthcare arises from chronic disease, most of which derives from behavior and can be prevented, and most of which can be medically controlled, the opportunities for reducing cost are huge. The models are there, have been proven, and can be copied. The business case for both employers and health plans is strong. So watch this trend: Ignore continuing attempts to control unit cost, and pay attention to emerging programs, partnerships, and business models that reduce system cost. That’s the future.